Brent Crude prices closed below $80 a barrel on Tuesday and were trading below that level early on Wednesday in Asian trade. Oil erased all gains from 2022 and plummeted to its lowest level in a year.
The continued oil selloff is likely not good news for OPEC+, which declared on Sunday that it will continue to reduce supplies by 2 million barrels per day in an effort to stabilize prices. This statement sustains a policy established in October, which is anticipated to last through the end of 2023.
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The last time Brent closed below $80 per barrel was in early January of this year. That is more than a month prior to the Russian invasion of Ukraine, which shook global energy systems and sent crude oil prices beyond $100 per barrel in the spring. This year, the spread between the highest and lowest oil price transactions has been a staggering $62. This is the largest oil trading range in a single year since the 2008 financial crisis.
Deteriorating global outlook undermines oil prices
Even though the EU ban and price restriction on Russian crude went into force earlier this week, the primary story on the oil and equities markets has been the global economic slowdown and gloomier economic forecasts lately. Moreover, oil traders and speculators are leaving the market near the end of the year due to the market’s high volatility and unpredictability. In addition, the structure of the oil futures market indicates a slow global oil demand and an adequate supply. Ed Moya, Senior Market Analyst at OANDA, said on Tuesday:
“The crude demand outlook is getting crushed as we are in a slowdown basically across all the major economies. Supplies seem plentiful over the near-term, and that has everyone hesitating on what was one of the easiest trades of the year.”
China abandons zero-Covid policy
Despite China’s intention to move away from the zero-Covid policy, investors remain concerned. Earlier in the day, China declared that positive individuals with moderate symptoms or who are asymptomatic will be permitted to quarantine at home for seven days. The Chinese government stated that no kind of mobility control should be enforced and that mass PCR testing will be mainly abandoned and relegated to hospitals, nursing homes, and schools.
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Bears will be defending December lows, currently the main short-term resistance, near $83. If the price jumps above that level, it could continue higher toward $90. On the other hand, a continuation of the downtrend is expected as long as oil trades below $83, with the next target near $75.
Brent chart, Source: Author’s analysis, Tradingview.com